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Bitcoin exchange: VATable or not?

In this case, it concerned a Swedish bitcoin exchange service operated via a website. Through the exchange, it was possible to exchange "bitcoin" (a virtual currency) into Swedish Krona and vice versa. The exchange operates a bid price and offer price, the difference constituting the remuneration for the services of the website. The exchange website and the Swedish Tax Authorities were in dispute whether the exchange of bitcoin should be considered within the scope of VAT, and if so, a VATable or VAT exempt activity.

In the first place, the ECJ states that a service for remuneration rendered by a bitcoin exchange must be treated as a VAT relevant service, in case there is a direct link between the services supplied and the consideration received by the exchange. As this is the case with such services, exchanging traditional currency for units of bitcoin and vice versa against remuneration constitutes a supply of services relevant for VAT purposes.

Secondly, the ECJ states that bitcoin is a contractual means of payment and a direct means of payment between the operators that accept it. The ECJ further considers that services relating to bitcoin are regarded as financial services, and should therefore be VAT exempt, just as services by 'regular' currency exchanges.

As the services performed by the website must be treated similarly to exchange services that are engaged with exchanging foreign currencies, no VAT should be charged by the service providers to customers for virtual currency exchange services. This means that service providers in this industry will possibly face input VAT recovery restrictions.

Finally, while the case seems only to apply to virtual currencies such as bitcoin, the case could also impact future technological developments such as smart contracts, Blockchain-based software systems in place between banks and insurers and communication between devices within the Internet-of-Things.

Compare jurisdictions: Litigation: Enforcement of Foreign Judgments

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